CONFIDENTIAL

Intellectual Property Valuation

Biotechnology Name
Draft 1.0

BioGenetic Ventures, Inc.

1330 N. Washington St., Suite 5600, Spokane, WA 99201

Contents:
ANALYSIS

Valuation Parameters
Revenue Forecast - PV
Contribution Margin - NPV
Value Profile - rNPV
Summary and rNPV Chart
DESCRIPTION of Valuation
Schedules

February 4, 2013
Model INSTRUCTIONS

copyright 2001 Jeffrey J. Stewart & Ronald S. Johnson

This Valuation Analysis is a strategic tool for management This document is a financial forecasting tool. The data presented is not necessarily
prepared in accordance with Generally Accepted Accounting Principles (GAAP). No representation or warranty is made as to the accuracy,
reliability or completeness of any of the information contained herein. Nothing contained in this document is, or should be relied upon as, a promise
or representation of future events or conditions. Recipients of this document agree that all information contained herein is of a confidential nature,
that they will treat it in such confidential manner and that they will not, directly or indirectly, disclose or permit their agents or affiliates to disclose any
of such information without the prior written consent of this company.

VALUATION PARAMETERS

BioGenetic Ventures, Inc.

Biotechnology Name

TECHNOLOGY VALUATION
Draft 1.0

METRIC

SOURCE

MARKET DATA
Number of Cases Forecast for Year 1
Annual Population Growth
Peak Market Penetration
Revenue Per Unit
Market Ramp Time to Peak Penetration (Years)
Orphan Drug (< 200,000 U.S.)? (y/n)

685,000,000 Maximum = population of U.S., Canada, western Europe, and Japan

0.27% CIA World Factbook, 2000. Estimated Growth in US and Europe Population
5.0%
$
100
3
N

NUMBER OF CLINICAL TRIAL SUBJECTS

Phase 1
Phase 2
Phase 3

50 20-80; Pharmaceutical Manufacturing and Research Association

200 100-300; Pharmaceutical Manufacturing and Research Association
2,000 1,000-5,000; Pharmaceutical Manufacturing and Research Association

DURATION OF PHASES (YEARS)

Preclinical
Phase 1
Phase 2
Phase 3
FDA

COSTS
Annual Pre-Market Patent Fees
Annual Preclinical Costs
Per Patient Phase 1
Per Patient Phase 2
Per Patient Phase 3
Approval Costs
Animal studies supporting Phase 1
Animal studies supporting Phase 2
Animal studies supporting Phase 3
Manufacturing/Marketing Costs + Markup

1
1
2
3
2
9

$
$
$
$
$
$
$
$
$

10,000
500,000
12,000
12,000
6,000
1,300,000
500,000
1,000,000
1,500,000
60%

Pharmaceutical Manufacturing and Research Association

Pharmaceutical Manufacturing and Research Association
Pharmaceutical Manufacturing and Research Association
Pharmaceutical Manufacturing and Research Association
Total Years of Pre-market Development

Approximate Total Costs for 2 Scientists

Hollister-Stier
Hollister-Stier
Hollister-Stier
$309,647 for PDUFA and $500,000-1,500,000+ for NDA preparation (ProPharma Partners; Covance)
SEC documents referencing 2001 survey
SEC documents referencing 2001 survey
SEC documents referencing 2001 survey
Manufacturing, 25%; Marketing, 25%; Margin, 10% (McKinsey New Venture, Moscho et al. Nature Biotech 18:719, 2000)

RATES
Royalty Rate
Discount Rate

5.0%
20% VC and pharma IRR (cost of capital for biotech)

RISK MITIGATED (Entering phase)

Preclinical
Phase 1
Phase 2
Phase 3
FDA

10%
20%
30%
67%
81%

Pharmaceutical Manufacturing and Research Association

Pharmaceutical Manufacturing and Research Association
Pharmaceutical Manufacturing and Research Association
Pharmaceutical Manufacturing and Research Association
FDA FY 2000 Performance Report to Congress for the Prescription Drug User Fee Act

DESCRIPTION OF CONTENT:

VALUATION PARAMETERS - This page defines the variables used in the analysis.

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CONFIDENTIAL

Page 2 of 8 Pages

REVENUE FORECAST - PV

BioGenetic Ventures, Inc.

Biotechnology Name
Annual Growth
Peak Competitive Market Share
Revenue Per Unit (ASP)

Revenue Forecast
PRODUCT REVENUE
Number of Cases
Market Share
Units Sold
Product Revenue

TECHNOLOGY VALUATION
Draft 1.0

0.27%
5.0%
100

YEAR
1

685,000,000
0.0%
-

ORPHAN DRUG TAX CREDITS

686,849,500
0.0%
-

688,703,994
0.0%
-

690,563,494
0.0%
-

692,428,016
0.0%
-

694,297,572
0.0%
-

696,172,175
0.0%
-

698,051,840
0.0%
-

10

699,936,580
0.0%
-

701,826,409
1.3%
8,772,830
877,283,011

PV of Product Revenue
PV of ODTC

2,306,727,506
-

2,768,073,007
-

3,321,687,608
-

3,986,025,130
-

4,783,230,156
-

5,739,876,187
-

6,887,851,425
-

8,265,421,709
-

9,918,506,051
-

11,902,207,262
-

PV of Revenue (Product + ODTC)

2,306,727,506

2,768,073,007

3,321,687,608

3,986,025,130

4,783,230,156

5,739,876,187

6,887,851,425

8,265,421,709

9,918,506,051

11,902,207,262

PV of Revenue

2,306,727,506
Discount Rate

YEAR
11
PRODUCT REVENUE
Number of Cases
Market Share
Units Sold
Product Revenue
ORPHAN DRUG TAX CREDITS

12

703,721,340
2.5%
17,593,033
1,759,303,350
-

13

705,621,387
3.8%
26,460,802
2,646,080,203
-

14

707,526,565
5.0%
35,376,328
3,537,632,826
-

15

709,436,887
5.0%
35,471,844
3,547,184,435
-

16

711,352,367
5.0%
35,567,618
3,556,761,833
-

17

713,273,018
5.0%
35,663,651
3,566,365,090
-

18

715,198,855
3.8%
26,819,957
2,681,995,707
-

20.0%

19

717,129,892
2.5%
17,928,247
1,792,824,730
-

20 Year
Total

20

719,066,143
1.3%
8,988,327
898,832,678
-

721,007,621
0.0%
-

PV of Product Revenue
PV of ODTC

13,229,909,101
-

13,764,726,902
-

13,342,376,038
-

11,765,691,855
-

9,862,208,904
-

7,566,536,485
-

4,800,205,675
-

2,541,851,962
-

898,832,678
-

PV of Revenue (Product + ODTC)

13,229,909,101

13,764,726,902

13,342,376,038

11,765,691,855

9,862,208,904

7,566,536,485

4,800,205,675

2,541,851,962

898,832,678

248,642,639
24,864,263,862
-

REVENUE FORECAST - PV - This page provides a 20 year revenue forecast for the drug or diagnostic. Note that even though the revenue analysis begins in the current year, revenue is not recognized in the analysis product
reaches the market. Revenue is anticipated for 10 years once the product reaches the market.
NOTE - ORPHAN DRUG TAX CREDITS: Although tax credits are not revenue in terms of GAAP, tax credits are a benefit that nearly universally impact the value of a biotechnology. For this reason we have considered orphan
drug tax credits as a "revenue," or benefit, of developing this drug.

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Page 3 of 8 Pages

CONTRIBUTION MARGIN - NPV

BioGenetic Ventures, Inc.

Biotechnology Name

TECHNOLOGY VALUATION
Draft 1.0

Contribution Margin Forecast

DEVELOPMENT STAGE

Technology
Acquisition
YEAR
1

Preclinical

Phase 1

PRODUCT REVENUE
ODTC

COSTS
Patent Fees
Preclinical Research
Phase 1
Phase 2
Phase 3
FDA Fees
Animal Studies 1 (1st year)
Animal Studies 2 (all years)
Animal Studies 3 (1st 2 years)
Manufacturing/Marketing
Royalty
Other

$
$
$
$
$
$
$
$
$

Annual Costs
10,000
500,000
600,000
1,200,000
4,000,000
650,000
500,000
500,000
750,000
60%
5%

Total Costs
Net Contribution Margin
Cumulative Net Contribution Margin
NPV Contribution Margin

Phase 2
-

Phase 2
-

Phase 3
-

Phase 3
-

Phase 3
-

FDA
-

10,000
500,000
510,000

10,000
600,000
500,000
1,110,000

10,000
1,200,000
500,000
1,710,000

10,000
1,200,000
500,000
1,710,000

10,000
4,000,000
750,000
4,760,000

10,000
4,000,000
750,000
4,760,000

10,000
4,000,000
4,010,000

(510,000)
(510,000)

(1,110,000)
(1,620,000)

(1,710,000)
(3,330,000)

(1,710,000)
(5,040,000)

(4,760,000)
(9,800,000)

(4,760,000)
(14,560,000)

(4,010,000)
(18,570,000)

797,853,452

958,036,142

1,150,975,371

1,383,222,445

1,661,918,934

2,000,014,721

2,405,729,665

10

FDA
-

10,000
650,000
660,000
(660,000)
(19,230,000)
2,891,687,598

Revenue
-

10,000
650,000
660,000
(660,000)
(19,890,000)
3,470,817,118

NPV Contribution Margin

877,283,011
-

526,369,806
43,864,151
570,233,957
307,049,054
287,159,054
4,165,772,542

797,853,452
Discount Rate

YEAR
11
DEVELOPMENT STAGE

Revenue

PRODUCT REVENUE
ODTC
COSTS
Patent Fees
Preclinical Research
Phase 1
Phase 2
Phase 3
FDA Fees
Animal Studies 1 (1st year)
Animal Studies 2 (all years)
Animal Studies 3 (1st 2 years)
Manufacturing/Marketing
Royalty
Other

$
$
$
$
$
$
$
$
$

Annual Costs
10,000
500,000
600,000
1,200,000
4,000,000
650,000
500,000
500,000
750,000
60%
5%

Total Costs
Net Contribution Margin
Cumulative Net Contribution Margin
NPV Contribution Margin

12
Revenue

13
Revenue

14
Revenue

15
Revenue

16
Revenue

17
Revenue

18

19

Revenue

20.0%
20 Year
Total

20

Revenue

1,759,303,350
-

2,646,080,203
-

3,537,632,826
-

3,547,184,435
-

3,556,761,833
-

3,566,365,090
-

2,681,995,707
-

1,792,824,730
-

898,832,678
-

24,864,263,862
-

1,055,582,010
87,965,167
1,143,547,177

1,587,648,122
132,304,010
1,719,952,132

2,122,579,696
176,881,641
2,299,461,337

2,128,310,661
177,359,222
2,305,669,883

2,134,057,100
177,838,092
2,311,895,191

2,139,819,054
178,318,254
2,318,137,308

1,609,197,424
134,099,785
1,743,297,209

1,075,694,838
89,641,236
1,165,336,074

539,299,607
44,941,634
584,241,241

90,000
500,000
600,000
2,400,000
12,000,000
1,300,000
500,000
1,000,000
1,500,000
14,918,558,317
1,243,213,193
16,181,661,510

615,756,172
902,915,226

926,128,071
1,829,043,297

1,238,171,489
3,067,214,786

1,241,514,552
4,308,729,339

1,244,866,641
5,553,595,980

1,248,227,781
6,801,823,761

938,698,497
7,740,522,259

627,488,655
8,368,010,914

314,591,437
8,682,602,352

4,630,468,185

4,817,654,416

4,669,831,613

4,117,992,149

3,451,773,116

2,648,287,770

1,680,071,986

889,648,187

314,591,437

8,682,602,352
-

DESCRIPTION OF CONTENT:

CONTRIBUTION MARGIN - NPV - This analysis estimates the current value of the contribution margin of the technology. Contribution margin is defined as the net cash contribution (revenue less direct costs). We do not
consider operating expenses here because overhead application rates vary considerably from one company to another.

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CONFIDENTIAL

Page 4 of 8 Pages

VALUE PROFILE - rNPV

BioGenetic Ventures, Inc.

Biotechnology Name

TECHNOLOGY VALUATION
Draft 1.0
YEAR
1

10

Preclinical
10%

Phase 1
20%

Phase 2
30%

Phase 2
30%

Phase 3
67%

Phase 3
67%

Phase 3
67%

FDA
81%

FDA
81%

Revenue
100%

Risk-Added and Adjusted Values

DEVELOPMENT STAGE
RISK MEDIATED
RISK-ADDED COSTS
Patent Fees
Preclinical Research
Trials - Phase 1
Trials - Phase 2
Trials - Phase 3
FDA Fees
Animal Studies 1 (1st year)
Animal Studies 2 (all years)
Animal Studies 3 (1st 2 years)
Manufacturing/Marketing
Royalty Splits
Other
Risk-Added Total Costs

$
$
$
$
$
$
$
$
$

Annual Costs
10,000
500,000
600,000
1,200,000
4,000,000
650,000
500,000
500,000
750,000
60%
5%

PV of Risk-Added Total Costs

PV of Revenue
Risk Adjustment
Risk Adjusted PV of Total Costs
Risk-Adjusted PV Revenue
Risk-Adjusted NPV

100,000
5,000,000
5,100,000

50,000
3,000,000
2,500,000
5,550,000

33,333
4,000,000
1,666,667
5,700,000

33,333
4,000,000
1,666,667
5,700,000

14,925
5,970,149
1,119,403
7,104,478

14,925
5,970,149
1,119,403
7,104,478

14,925
5,970,149
5,985,075

12,346
802,469
814,815

12,346
802,469
814,815

526,369,806
43,864,151
570,233,957

1,525,057,399
2,306,727,506

1,823,948,879
2,768,073,007

2,182,078,654
3,321,687,608

2,611,654,385
3,986,025,130

3,127,145,262
4,783,230,156

3,744,048,941
5,739,876,187

4,484,333,357
6,887,851,425

5,374,017,938
8,265,421,709

6,447,843,748
9,918,506,051

7,736,434,720
11,902,207,262

30%
783,496,316
1,195,807,539
412,311,223

67%
2,095,187,326
3,204,764,204
1,109,576,879

67%
2,508,512,791
3,845,717,045
1,337,204,255

67%
3,004,503,349
4,614,860,454
1,610,357,106

81%
4,352,954,530
6,694,991,585
2,342,037,055

81%
5,222,753,436
8,033,989,902
2,811,236,466

100%
7,736,434,720
11,902,207,262
4,165,772,542

10%
152,505,740
230,672,751
78,167,011

20%
364,789,776
553,614,601
188,824,826

30%
654,623,596
996,506,282
341,882,686

Risk-Adjusted NPV

78,167,011
Discount Rate

Development Stage
Risk Mediated
RISK-ADDED COSTS

Annual Costs
10,000
500,000
600,000
1,200,000
4,000,000
650,000
500,000
500,000
750,000
60%
5%

YEAR
11

12

13

14

15

16

17

18

19

20

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

Revenue
100%

100%

20 Year
Total
-

1,055,582,010
87,965,167
1,143,547,177

1,587,648,122
132,304,010
1,719,952,132

2,122,579,696
176,881,641
2,299,461,337

2,128,310,661
177,359,222
2,305,669,883

2,134,057,100
177,838,092
2,311,895,191

2,139,819,054
178,318,254
2,318,137,308

1,609,197,424
134,099,785
1,743,297,209

1,075,694,838
89,641,236
1,165,336,074

539,299,607
44,941,634
584,241,241

PV of Risk-Added Total Costs

PV of Revenue

8,599,440,916
13,229,909,101

8,947,072,486
13,764,726,902

8,672,544,425
13,342,376,038

7,647,699,706
11,765,691,855

6,410,435,788
9,862,208,904

4,918,248,716
7,566,536,485

3,120,133,689
4,800,205,675

1,652,203,775
2,541,851,962

584,241,241
898,832,678

Risk Adjustment
Risk Adjusted PV of Total Costs
Risk-Adjusted PV Revenue
Risk-Adjusted NPV

100%
8,599,440,916
13,229,909,101
4,630,468,185

100%
8,947,072,486
13,764,726,902
4,817,654,416

100%
8,672,544,425
13,342,376,038
4,669,831,613

100%
7,647,699,706
11,765,691,855
4,117,992,149

100%
6,410,435,788
9,862,208,904
3,451,773,116

100%
4,918,248,716
7,566,536,485
2,648,287,770

100%
3,120,133,689
4,800,205,675
1,680,071,986

100%
1,652,203,775
2,541,851,962
889,648,187

100%
584,241,241
898,832,678
314,591,437

Patent Fees
Preclinical Research
Trials - Phase 1
Trials - Phase 2
Trials - Phase 3
FDA Fees
Animal Studies 1 (1st year)
Animal Studies 2 (all years)
Animal Studies 3 (1st 2 years)
Manufacturing/Marketing
Royalty Splits
Other
Risk-Added Total Costs

$
$
$
$
$
$
$
$
$

20.0%

286,134
5,000,000
3,000,000
8,000,000
17,910,448
1,604,938
2,500,000
3,333,333
2,238,806
14,918,558,317
1,243,213,193
42,467,299,132

100%
-

DESCRIPTION OF CONTENT

VALUE PROFILE - rNPV - Every biotechnology has a risk-adjusted net present value (rNPV) that is a function of the NPV of the future payoff (P), the NPV of the future costs (C), and the risk mediated (R) at each stage of
development. The rNPV is calculated for each year of the drug or treatment's product life cycle.

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Page 5 of 8 Pages

SUMMARY & VALUE PROFILE - rNPV

BioGenetic Ventures, Inc.

Biotechnology Name

TECHNOLOGY VALUATION
Draft 1.0

Risk-Adjusted Net Present Value (rNPV)

6,000,000,000

5,000,000,000

Value ($)

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

10

11

12

13

14

15

16

17

18

19

20

Time (years)

PV of Revenue
$

2,306,727,506

NPV of Cash Flow

$

797,853,452

Risk-Adjusted NPV
$

78,167,011

DESCRIPTION OF CONTENT

SUMMARY & rNPV CHART - The rNPV is graphically represented as a function of time. PV of Revenue, NPV of Cash Flow, and rNPV are summarized.

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Page 6 of 8 Pages

BioGenetic Ventures, Inc.

BIOTECHNOLOGY VALUATION

Description of Valuation Schedules

Page 2

VALUATION PARAMETERS - This page defines the variables used in the analysis.

Page 3

REVENUE FORECAST - PV - This page provides a 20 year revenue forecast for the drug or diagnostic. Note that even though the revenue analysis begins in the current year, revenue
is not recognized in the analysis product reaches the market. Revenue is anticipated for 10 years once the product reaches the market.

Page 4

CONTRIBUTION MARGIN - NPV - This analysis estimates the current value of the contribution margin of the technology. Contribution margin is defined as the net cash contribution
(revenue less direct costs). We do not consider operating expenses here because overhead application rates vary considerably from one company to another.

Page 5

VALUE PROFILE - rNPV - Every biotechnology has a risk-adjusted net present value (rNPV ) that is a function of the NPV of the future payoff (P ), the NPV of the future costs (C ), and
the risk mediated (R ) at each stage of development. The rNPV is calculated for each year of the drug or treatment's product life cycle.

Page 6

SUMMARY & rNPV CHART - The rNPV is graphically represented as a function of time. PV of Revenue, NPV of Cash Flow, and rNPV are summarized.
Theoretical Basis for Valuation Methodology - As discussed in detail in Stewart, Allison, and Johnson "Putting a Price on Biotechnology" Nature Biotechnology Sept. 2001,
biotechnology value is estimated by a combination of risk-adjustment and discounting the anticipated cash flow.
Taking only risk-adjustment into account, the risk-adjusted value (rV ) of an endeavor in which the risk changes is the payoff (P ) times the current risk (R 0) minus each associated cost
(C i) times the likelihood (R 0/R i) of having to pay each cost.
n

rV PR0 C i R0 / Ri
i 0

By extension, the risk-adjusted net present value (rNPV ) is simply a time discount of each risk-adjusted factor.
n

rNPV NPV PR0

i 0

NPV

C i R0 / Ri

Practically, it is simpler to risk-add the annual costs and include them in a discounted cash-flow analysis and only risk-adjust for current risk after discounting. That is, a cost C i, made
when risk mediated is R i is accounted as a risk-added expenditure of C i/R i. Risk-added expenditures (C i/R i) can be added directly to a typical cash flow that is discounted normally.
Finally, the NPV of the cash flow (including each C i/R i) is risk-adjusted by the current risk mediated (R 0).
n

rNPV R0 ( NPV P
i 0

NPV

C i / Ri )

Example: A treatment has completed Phase I. $3M is needed to complete Phase II, where the risk mediated is the industry average of 30%. $50M more will be needed to complete
Phase III, where the risk mediated is the industry average of 67%. The Phase II expenditures are risk-added to $10M ($3M / 30%). The Phase III costs are risk-adjusted to $75M
($50M / 67%). These risk-added expenditures are added as costs to the NPV calculation. Finally, the NPV (that now includes risk-added costs) is risk-adjusted by the risk mediated to
date (in this example, 30%).
rNPV Gradually
Wanes During
SUMMARY
&
rNPV
CHART
VALUE PROFILE - rNPV
(Page 6)
(Page 7)
Revenue Stages
CONTRIBUTION MARGIN - NPV (Page 5)
12
REVENUE FORECAST - PV (Page 4)
MODEL ASSUMPTIONS (Page 3)

10
8
6

4
2
0
1

rNPV Builds During R&D

2/4/2013 1:10 AM

10

11

12

13

14

15

16

17

18

19

20

Revenue Begins

Page 7 of 8 Pages

BioGenetic Ventures, Inc.

BIOTECHNOLOGY VALUATION

Model Instructions
DATA ENTRY
Step 1

COVER DATA - Complete the data input on the "Cover" worksheet as directed by the cell notes on the "Cover" worksheet.

Step 2

MODEL DATA - Enter the relevant metric data on the "Valuation Parameters" page (first page) under the "Analysis" worksheet tab. Do
not enter any data on the other schedules (except the "other" line in the "Contribution Margin - NPV" schedule, as needed) in the
"Analysis" worksheet. The data produced here are all generated as a result of the metric parameters input onto the "Valuation
Please note that we have preloaded some of the data input cells on the "Valuation Parameters" page with formulas for initial ease of use.
These cells are intended to be overridden with user data.

Step 3

PRINT - Print either the relevant worksheets or the entire workbook. Print pages have been predefined and will print an 8 1/2 x 11 inch
presentation-quality valuation package. To print all pages, select "Entire Workbook" on the "Print" screen.

Comments regarding this model may be sent to Jeffrey J. Stewart (jjs@alumni.princeton.edu) or Ronald S. Johnson (svcg@ix.netcom.com).

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